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Digital spends see double-digit growth

Momentum maintained in ad spends; e-commerce outperforms

Digital ad tech giants have reported a sharp rebound in advertising spends as ad revenue for Alphabet/Meta grew 11% YoY/24.2% YoY in Q4CY23, the highest since the past four quarters. This was helped by: 1) festive season, 2) better growth in emerging nations and 3) traction in online commerce vertical for advertising spends. Growth was dominated by impressions yet again, as pricing was largely flat. E-commerce sales – 3P/1P – for Amazon saw strong growth of 19.9% YoY/8.9% YoY in Q4CY23. Subscription revenue grew 14.1% YoY for Prime, and advertising revenue for the e-commerce giant grew 26.8%, led by a mix of display and video advertising.

AI-led digital advertising – Driving better conversions

Alphabet is planning to invest aggressively in the connected TV segment, as that is a large driver for ad spends. YouTube ads are also undergoing a change from pure image ads to visual formats, which is driving a higher conversion rate. Most companies are also investing to provide measurement capability for advertising efforts, so as to drive better ROI for the advertiser. Meta continues to invest in generative AI-led features to drive ad revenue growth and may also develop automation tools to drive higher online sales.

Read-through for Indian listed companies

We continue to believe that e-commerce advertising in India may sustain its outperformance versus other segments of digital advertising (social, search, video), which may benefit companies such as Jio Platforms (RIL), Nykaa, Zomato and other Indian e-commerce names. This can become a potential driver for profitability for new age companies.

As per our assessment, advertising revenue for e-commerce could be led by: 1) increased customer adoption/penetration, 2) opening up to multiple categories (traditional verticals increasing ad.spends on digital) and 3) innovative means of digital advertising on e-commerce (videos and promotions). This in turn may drive the need for more customer conversion and augur well for programmatic players such as Affle. Continued momentum in YouTube ad revenues will augur well for listed news led broadcasters (TVT) and music labels (TIPS, Saregama).

Further, connected TV (CTV) is also a big opportunity for ad tech players in India. We will continue to monitor trends and penetration of CTV, coupled with any potential solution (measurement mechanism) that can drive better ad spends on the platform. AI-led digital advertising is the need of the hour and programmatic players may need to migrate towards the same to drive efficiencies, just like the global tech giants which are aggressively investing into AI led advertising.

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